Question

What are the existing Accounting Standards followed by Indian Banks? How could we make these Standards competitive to the International Standards.

19 Feb 2018
Answer :
Word Count : 1103

The Companies (Indian Accounting Standards) Rules, 2015 (Ind-AS), converging substantially with the International Financial Reporting Standards (IFRS), will impact banks in the country in a two-fold manner.

The Companies (Indian Accounting Standards) Rules, 2015 (Ind-AS), converging substantially with the International Financial Reporting Standards (IFRS), will impact banks in the country in a two-fold manner. First, it can impact their businesses, given the corporates to which they have lent have already started to report under the Ind-AS from the current year, thereby impacting financial ratios and covenants. This is likely to impact the banks’ processes of credit appraisal, covenant setting and credit rating, as the financial position of these corporates may look very different under Ind-AS.

Second, it will impact banks’ own financial statements, where the new principle-based standards may largely override RBI’s rule-based accounting. Banks currently prepare their financial statements as per the Accounting Standards as notified under the Companies Act and the statutory requirements under the banking regulations, circulars and guidelines issued by RBI from time to time. RBI prescribes rules around income recognition, asset classification, impairment provision, and de-recognition. The move to Ind-AS is a paradigm shift that introduces several complex concepts. With newer concepts, such as expected credit loss recognition for loan and investments, interest recognition on effective interest rate basis, emphasis on fair valuation measurement, evaluation of risk and reward criteria for transactions related to priority sector lending (PSL) and asset reconstruction companies (ARCs), this transition is bound to have an organisation-wide impact.
Banks will have to determine the impact on product design, lending policies, credit assessments, covenant monitoring, tax

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